This article was written by Nathan Hodge, Annabelle Horwood and Corrina Virtanen.
The addition of affordable housing as an investment class for MITs should provide a further opportunity for investors. Superannuation changes have been very limited which is not surprising given the sensitivity arising from prior changes.
Affordable Housing Through Managed Investment Trusts
In order to encourage affordable housing, the Federal Government has announced an initiative to allow investors in Managed Investment Trusts (‘MITs’) undertaking affordable housing projects to access tax concessions.
From 1 July 2017 MITs will be able to acquire, construct or redevelop property to derive income from affordable housing.
In order to qualify for this concession, the relevant MIT will have to satisfy the following requirements:
- the MIT must derive at least 80 per cent of its assessable income from affordable housing;
- housing must be provided to low to moderate income tenants;
- low to moderate income tenants must be charged a rate of rent below the private rental market rate.
Individual resident investors will be eligible for an increased CGT discount.
Specific withholding tax will apply to non-resident investors.
An increased MIT withholding tax will apply in certain circumstances.
- if less than 80 per cent of the MITs income is derived from affordable housing in an income year;
- if more than 20 per cent of the MITs income is derived from other eligible investment activities currently allowed under the existing MIT rules;
- on net capital gains arising from the disposal of properties held for rent as affordable housing for less than 10 years.
Under the current rules the provision of affordable housing may have aspects associated that do not fall within the scope of the activities which may be undertaken by an MIT. The new amendments should provide greater clarity to ensure that those activities do constitute eligible activity.
It would be hoped that the new regime will provide greater flexibility in undertaking investments in affordable housing projects.
Interestingly, the proposed concessional capital gains tax treatment appears to only be available to individual investors. It does not appear to be a change proposed to the concessional capital gains tax treatment for complying superannuation funds.
Legislative drafting – additional resources
In the period 2017-2018 $16.9 million will be allocated to the Department of Treasury and $5.2 million to the Office of Parliamentary Counsel to ensure dedicated drafting resources are available to progress financial services and taxation reform legislation.
A range of super measures
The Government has left superannuation alone with no significant changes, few surprises and an ad hoc range of measures.
With the industry struggling to implement the changes from the 2016 budget and currently being the subject of a wide number of reviews and changes, it will welcome the light touch approach in the 2017 budget. Only a handful of miscellaneous measures were announced, which related to:
- to continue facilitating the consolidation of the industry, extending for 3 years the current CGT relief for merging superannuation funds to 1 July 2020. This would appear to be in addition to the April 2017 announcement to expand the tax relief when transferring accrued default amounts to MySuper products.
- with a view to tackling housing affordability from 1 July 2018, allowing persons aged 65 or older to contribute up to $300,000 to their super from the proceeds of selling their home held for at least 10 years.
- as an integrity measure from 1 July 2017, including the value of and repayments in limited recourse borrowing arrangements in a member’s total superannuation balance and the $1.6 million (indexed) transfer balance cap. This rule would appear to apply both to new arrangements and existing arrangements as at 1 July 2017.
- as an integrity measure from 1 July 2018, amending the non-arm’s length income rules in the tax law to ensure expenses are considered when determining whether a transaction is on an arm’s length basis.
Another measure to tackle housing affordability will allow first home owners to contribute up to $15,000 a year (and $30,000 in total) to the concessionally taxed super environment to save for their first home. However, this will only apply to new contributions from 1 July 2017, with the first withdrawals for a home deposit only being made from 1 July 2018. This scheme is significantly different to the First Home Saver Accounts which were abolished from 1 July 2015, including a lower maximum contribution amount and a shorter period before withdrawals can be made.
The Government will also replace the Superannuation Complaints Tribunal with a one-stop cross-industry Australian Financial Complaints Authority. The Government also announced additional funding for APRA to undertake new regulatory activities relating to a stable, efficient and competitive financial system funded by an increase in APRA levies (but did not give specifics of these activities). See Major Banks Second Report – Here we go again for more information on these two measures.
For a full analysis of this year's Budget measures, please see Australian Federal Budget 2017-18.